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Nokia Q2 sales slide as mobile division melts

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Jul 15, 20044 mins
Financial Services IndustryWi-Fi

Nokia Thursday reported a 5% decline in net sales for the second-quarter, after being shaken by a dramatic drop in sales of mobile phones. The Finnish mobile phone manufacturer said the European and U.S. markets remain “challenging.”

Nokia Thursday reported a 5% decline in net sales for the second-quarter, after being shaken by a dramatic drop in sales of mobile phones. The Finnish mobile phone manufacturer said the European and U.S. markets remain “challenging.”

Nokia reported net sales of €6.6 billion ($8 billion as of June 30, the last day of the period being reported) for the second quarter compared to €7 billion for the year-ago period.

Net profit was up 14%, however, from €624 million, or €0.13 a share in the second quarter of 2003 to €712 million, or €0.15 a share in the just-ended period, aided by gains in the company’s multimedia and networks divisions.

Operating profit for the period was also up, climbing 11% from €818 million a year ago to €907 million in the second quarter of this year, boosted by a one-time €90 million insurance program return.

The company’s mobile phones group continued to take hits due to pricing pressures and a late start into certain product areas. Mobile phone sales fell 13% from €4.8 billion in the year-ago quarter to €4.2 billion in the second quarter.

The drop in Nokia’s sales was reflected in market share numbers, which showed the Espoo, Finland, company losing ground to competitors, from a first-quarter 2004 market share of 32% to a second quarter share of 31%, the company said.

“Obviously, we are lower than we want to be but we have managed to limit negative market share through product introductions and selective price cuts,” Nokia Chairman and CEO Jorma Ollila said in a conference call on the results Thursday.

The handset leader found itself behind the times recently when a demand for camera and clamshell phones sparked the market.

Sony Ericsson Mobile Communications AB, for example, pushed aggressively into the camera phone market and reaped the rewards. The Swedish-Japanese venture, which also reported its second-quarter results on Thursday, said that it beat its unit shipment forecast for the period.

Nokia has been trying to introduce products to fill its gaps, and Ollila said that camera phones now make up around half of its mobile sales. The company also launched three new clamshell models during the second quarter, looking to snap up more sales.

While Nokia looks to steady itself, the same cannot be said of the global mobile device market, which was on the move. The market grew to 148 million units in the second quarter and is on track to surpass 600 million units by the end of the year, Nokia said. Emerging markets such as India, Brazil and Russia have opened up new opportunities to vendors, it added.

The company did particularly well in Latin America, Ollila said, where mobile penetration is on the rise.

However, Europe and the U.S. remained “challenging” for the company, and it has been trying to stem losses.

Nokia predicted that its recent price cuts and product introductions will begin to reap awards, bringing the company a rosier second-half of 2004, although not at last year’s levels.

“While our product portfolio is improving, we are still not where we want to be,” Ollila said.

Nokia group sales are expected to be in the range of €6.6 billion to €6.8 billion for the third-quarter of 2004, compared to net sales of €6.9 billion for the year-ago period, Nokia said. Third-quarter earnings per share are expected to come in at €0.08 to €0.10 compared to €0.17 for the year-ago period.

Ollila underscored that continued strength in the company’s network division – which has had recent success netting Wideband Code Division Multiple Access contracts – and steady investments in research and development would boost the company during the second half of the year.